- 17 Marks
FM – L2 – Q81 – Sources of finance: debt
Calculate loan repayment schedule for a GH₵300,000 loan and list advantages of term loan over overdraft.
Question
(a) Dinco Supermarket is considering acquiring a loan of GH₵300,000 from Abrempong Bank Ltd. The loan is payable in five equal annual instalments at an interest rate of 25%. Dinco Ltd has consulted you to determine their annual repayment amount and the interest thereon.
Required:
(i) Prepare a repayment schedule for Dinco indicating clearly the interest payment and the principal repayment
(ii) State THREE (3) advantages of a term loan over an overdraft facility
(b) On 1st January 20X4, Exchequers Insurance issued a 15% convertible bond quoted at GH₵123. The nominal value for each bond is GH₵100 and the conversion date for the bond is 31st December 20X9 after interest has been paid. The bond is convertible at 20 ordinary shares per GH₵100 bond. The current price per share is GH₵6.
Required:
(i) Determine the conversion rate.
(ii) Determine the conversion premium.
(iii) Comment on the possibility of bond holders converting for shares.
Find Related Questions by Tags, levels, etc.
- Tags: Conversion Premium, Conversion Rate, Convertible bonds, Debt financing, Equity Conversion
- Level: Level 2
- Topic: Sources of finance: debt
